Margin Watch: December

January 3, 2013 by Chip Whalen

Margins were mixed over the last two weeks of the year, with nearby Q1 and Q2 improving from the middle of December while margins in the second half of 2013 declined slightly. All the same, margins did continue a steady improvement heading into the quarterly Hogs and Pigs report released on Friday, and this offered producers some great opportunities to extend coverage at historically high levels of profitability. USDA reported all hogs and pigs on December 1st at 66.348 million head, virtually identical to last year’s December inventory at 66.361 million and towards the high end of trade expectations. Another figure that caught the trade’s attention was 5.817 million kept for breeding, 14 million above last year when pre-report expectations were for a decline in the breeding herd. Also above the range of pre-report expectations were the Sep-Nov pigs per litter at 101.3% of last year (100.2-101.1% range) as well as the Dec-Feb farrowing intentions at 100% of last year (96.6-99.0%). These figures would suggest … Get the Complete Report »

Dairy margins continued their mixed trend, strengthening in some periods while weakening in others, but were largely steady to finish off the month of December. Feed prices have generally been declining over the past couple weeks as improved weather in South America has taken more risk premium out of the market. Corn demand remains poor with dismal weekly export sales and negative ethanol margins evident. The market will focus on the level of domestic feed demand to be revealed in the quarterly stocks report January 11. Soybean meal demand has been stronger, although there is now a fairly limited window of time before South American supplies will become available to the world market. Milk prices will avoid the “dairy … Get the Complete Report »

Beef margins deteriorated since the middle of the month, although December generally has witnessed a trend of improving margins for beef cattle finishers. From a historical perspective, margins remain at relatively high percentiles throughout 2013 with the lone exception of the August marketing period where they are currently projected negative at the 63rd percentile of the past five years. To some extent, margins have come under pressure from weakness in cattle following a slightly bearish December Cattle on Feed report. USDA noted November placements at 1.923 million head, 5.6% lower than last year but 3% higher than the average of pre-report trade estimates. Placement weights were also higher in November, with the average of 683.1 pounds up 1.7% from last year and 0.6% above the 5-year average. Meanwhile, the November Cold Storage report showed … Get the Complete Report »

Corn margins have improved slightly since the middle of October as futures prices have strengthened while basis levels remain elevated. Harvest progress continues to advance at a rapid, near-record pace this year, with 91% of the crop harvested to date. Debates surrounding total production remain, as some market participants argue the USDA is still too high on the harvested acres estimate. USDA announced it would not make any changes to abandonment until the January crop report when production for the crop year is finalized. Demand prospects therefore will be the main focus for price direction in the near-term. Weekly ethanol production remains below last year’s level and is currently … Get the Complete Report »

Nearby soybean margins have improved since the middle of October while deferred 2013 soybean margins have likewise strengthened during the period. Soybean harvest has advanced at a near-record pace this year as plant maturation occurred much earlier than normal due to the extreme heat this summer and early spring planting. The latest reports show that 87% of the crop has been harvested. With harvest advanced, the market will begin determining whether demand forecasts are achievable. NOPA recently released its crush figure for September, reporting 119.7 million bushels crushed for the month, up from 110.3 last year. NOPA members represent roughly 95% of all domestic crushing plants which would translate to approximately 126 million bushels crushed for the month including non-members of NOPA. The current USDA projection is for a crush rate of 1.54 billion bushels, translating to just over 128 million bushels per month. Export sales and shipments have been … Get the Complete Report »

Wheat margins have strengthened a bit since the middle of October as futures prices have moved higher. Winter wheat plantings are now 88% complete with 63% of the crop emerged. Weather forecasts are slightly wetter past November 1 which should help early crop development prior to dormancy. Initial crop conditions were reported to be 40% good-to-excellent versus 46% at this time last year. On the global front, Ukraine recently announced a ban on exports after November 15 due to the poor harvest this past year and a lack of exportable surpluses. Russia also has produced a smaller crop and has seen domestic prices for wheat, flour, and barley increase of late causing … Get the Complete Report »

About the Author

Chip Whalen, CIH

Chip Whalen

Chip is one of our resident educators with over fifteen years of teaching, trading, and senior risk management experience.

There is a risk of loss in futures and options trading. Past performance is not indicative of future results. The information contained in this publication is taken from sources believed to be reliable, but is not guaranteed by Commodity & Ingredient Hedging, LLC, nor any affiliates, as to accuracy or completeness, and is intended for purposes of information and education only. Nothing therein should be considered as a trading recommendation by Commodity & Ingredient Hedging, LLC. The rules and regulations of the individual exchanges should be consulted as the authoritative source on all contract specifications and regulations.

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